Q2 2019 Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the Q2 2019 Nu skin Enterprises earnings Conference call.

At this time all participants are in a listen only mode.

Later, we will conduct a question and answer session.

And instructions will follow what that's fine.

If anyone should require assistance during the conference. Please press Star then zero ordinary Touchtone telephone.

As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host Mr., Scott <unk>, Vice President of Investor Relations you may begin.

Thank you Kyle and good afternoon, everyone on the call with me today are rich would chief Executive Officer, Rande appears keep president Mark Lawrence Chief Financial Officer, and Dr., Joe chain, Chief Scientific Officer.

On today's call comments will be made that include some forward looking statements. These statements involve risks and uncertainties and actual results may differ materially from those discussed or anticipated. Please refer to today's earnings release, and our SEC filings for a complete discussion of these risks.

Also during the call certain financial numbers may be discussed that differ from comparable numbers obtained in our financial statements.

We believe these non-GAAP financial numbers assist in comparing period to period results in a more consistent manner.

Please refer to our Investor page at IR Dot Nu skin dot com for any required reconciliation of non-GAAP numbers and I'd like to turn the I know rich.

Thank you Scott and good afternoon, everyone. Thank you for joining us today.

I understand there was a delay on the side of our wire service from the release today and so just went out recently, we apologize for that.

Late a submission.

As you saw in our release today inconsistent with our pre release, our second quarter revenue was 623 and a half million dollars with earnings per share of 83 cents.

Our revenue and earnings were lower than previously expected due to primarily softness in China caused by the limitation of sales meetings and the negative consumer sentiment relating to the government's 100 day review had been nutrition and direct sales industry.

The government's 100 day review period ended on April 18.

However, the restriction on holding sales meetings continued throughout the quarter.

These sales meetings are critical for acquiring training and developing our sales force in China.

Furthermore, the significant amount of press associated with the nutrition industry as well as direct selling negatively impacted consumer sentiment.

These factors impacted our sales force with mainland China sales leaders declined 27% against the prior year.

On a more positive note our customer base remained fairly steady benefiting from several consumer initiative.

Toward the end of the second quarter, we began holding limited meeting and the approval of sales meetings has continued to improve and to July and August .

During the month of July for example locations in which about two thirds of our sales leaders, where they live and work. We're open for meeting and that has continued to modestly improve during the month of August however, both the number and the size of meetings remain restricted restrictive compared to the pre 100 day period.

Despite this recent disruption we continue to see great potential in China.

It is a vast market with motivated entrepreneurial people, who need and appreciate both our products and opportunity.

Our local management team has significant experience operating through challenging circumstances and has the confidence of our sales leaders several key initiatives, including the launch of a new galvanic spa and new incentives for sales leader performance will kick off this quarter and should help strengthen our mainland business.

We are encouraged with the performance of our other segments, which performed largely in line with our expectations in the second quarter, particularly giving at given a difficult comparison as we reported 28% growth in the prior year in connection with our limits fall launch.

Our manufacturing platform reported second quarter growth.

A 39% and we continue to see great potential in this area.

In the second half of the year, we will focus our attention on several key global product initiatives, including the release of a new and improved galvanic spa historically, our top selling product.

In October we will be holding our biennial global sales leader event, which we call line, where we will be hosting our sales leaders from around the world.

We are confident that we have the right strategy focused on customer growth and driven by engaging platforms, enabling products and empowering programs.

I'll now turn the call over to Ryan who will give some additional detail around our strategy and plans for the rest of the year and then Mark will take us through the financials right. Thanks Rich. Good afternoon, everyone. Let me first begin by reiterating a comment rich's comments that we remain confident in our in our growth strategy as we adapt to changing environmental factors.

We continue to focus on empowering sales leaders to grow their businesses by acquiring and retaining customers through engaging platforms, enabling products and empowering programs.

I also want to address some of the steps we are taking in response to the situation in China and the progress we are making in executing our overall growth strategy first regarding China.

We're encouraged with our increasing ability to hold meetings, which facilitates the building and training of our sales force in fact I was in Shanghai three weeks ago for our company's largest ever mainland China sales event with more than 20000 enthusiastic sales leaders in an independent.

Their enthusiasm gives me confidence for our future in China.

China remains a top priority as we continue to work to strengthen our business in the second half we have three specific initiatives to accomplish this goal first the launch of our new and improved galvanic spa together with our new Ageloc Nutri Nutri, all hair and scout treatment system.

Second new business incentives intended to improve sales leader productivity and third initiatives focused on customer acquisition and retention, including a new customer referral program.

Next let me mention a few of the highlights in our other regions.

The Americas specific segment generally performed as expected, but was negatively impacted by the hyper inflationary environment in Argentina, The Pacific, Mexico, and Peru generated strong results and we look forward to the discover the best U.S. initiative in our home market, which is a multifaceted campaign, consisting of several platform product and program initiatives to energize our business in this critical market. We executed a similar campaign last year in Mexico, where we have seen it expire or we have experienced improved performance.

In South Korea, we continue to see signs of stabilization and an opportunity to return this market to grow with new product introductions and enhancements to our velocity sales compensation program.

Southeast Asia generally performed as expected, while comparing against the 31% growth in the prior year.

We're seeing some good performance from several markets, including high potential growth markets of Vietnam and Indonesia.

In Japan, we are encouraged by two consecutive quarters of constant currency growth as sales leaders a line around our growth strategies driven by velocity in our beauty device systems.

Hi, weren't Taiwan performed well during the quarter with Hong Kong's comparisons impacted by significant sales from the prior year's Greater China Convention, which was held in the market. In addition, Hong Kong continues to face an unsettled political environment.

Finally, EMEA performed well driving 5% constant currency growth.

Globally, we continue to make progress in executing the various elements of our growth strategy.

Regarding our engaging platforms, we will complete our technology migration to the cloud by the end of Q3. This gives us an agile and scalable technology infrastructure, enabling us to adapt and innovate more quickly and provide our customers with a better digital experience. It also it's also an important step in transforming our company into a more customer obsessed global and digital organization.

With our enabling products as many of you know we recently made were named by Euro monitor as the world's number one at home beauty device systems brands.

And we're working to further strengthen this position to this end we are excited about the introduction of our new and improved galvanic Spa one of our most successful customer acquisition devices.

We believe this enhanced spa, along with our new Ageloc Nutri, all scalp and hair system will help fuel momentum in our business around the world.

Beginning at live at our live event in October we will introduce several new products focused on empowering our sales leaders with a greater portfolio of socially shareable products.

These introductions will roll out globally over the next several quarters.

For example, you've heard US talk about our controlled environment Agriculture initiative, which includes indoor indoor growing technology developed to provide seed to solution ingredients. We believe this technology will disrupt the nutrition and personal care industries as consumers increasingly demand clean pure and sustainably sourced products in an increasingly polluted and under Resourced planet.

At life were excited to introduce our first two products the leverage this vision and technology, a green shake and a face mask.

Finally regarding empowering programs, we continue to focus on optimizing velocity, our enhanced sales compensation plan to drive sales leader creation and productivity around the world.

Philosophy is designed to optimize sales leader performance based on an individual market needs to promote a more fella flexible fast and fulfilling business and attract and reward a broader range of entrepreneurs. We are seeing improvements in key metrics, including customer acquisition. The number of people, earning a commission and potential sales leaders in qualification. Additionally, we're in the early stages of rolling out an enhanced consumer loyalty program to further strengthen customer retention, which began in Q2 in Taiwan and we'll roll out globally throughout 2020 in summary, we remain confident in our growth strategy as we learn and adapt to environmental factors and believe we have the right team and initiatives in place to grow our business and with that I'll turn the time over to Mark. Thanks Ryan.

I will take a few minutes to walk you through our financial results for the second quarter.

And give an update on our Q3 and 2019 guidance.

As a reminder, you can find additional financial information in our release and on the investors section of our website.

Second quarter revenue came in at $623.5 million compared to $704.2 million in the prior year.

The previous year period included a list by introduction, which drove sales growth of 28%.

Our quarterly revenue results were negatively impacted by 4% or approximately $31 million by unfavorable foreign currency fluctuations.

Second quarter earnings per share were 83 cents compared to 90 cents in the prior year quarter.

Gross margin for the quarter was 75.3% compared to 76.1% in the prior year quarter.

Our margin was negatively impacted by unfavorable foreign currency and an increased percentage of manufacturing platform revenue.

New skin gross margins remain steady at 77.8% due to our continued focus on product cost.

We anticipate our overall gross margin to be approximately 76% to 76.5% for the balance of the year.

Selling expense as a percent of revenue was 39.4% compared to 38.7% in the prior year.

Selling expense for the new skin business was 41.5%.

General and administrative expense as a percent of revenue improved 160 basis points to 24% as we continue to drive expense efficiencies.

We anticipate our DNA spend will increase in the fourth quarter, when we host our global life sales event.

I am pleased with the results of our efforts to find efficiencies in our business model as evidenced by a slightly improved operating margin of 11.9% for the quarter, even with our reduced revenue.

The other income expense line reflects a 3.3 million dollar expense compared to an 11.2 million dollar expense due largely to an 8.4 million dollar foreign currency translation loss in the prior year.

During the quarter, we paid $20.6 million in dividends and did not repurchase any stock.

Our tax rate for the quarter was 34.6% compared to 28.8%.

Our rate in the prior year benefited from our decision to permanently reinvest funds in China for a new manufacturing facility.

Our revenue guidance for the third quarter is 595 million to $615 million and includes an approximate 2% foreign currency headwind.

We project Q3 earnings per share of 74 cents to 81 cents.

For 2019, consistent with the guidance provided on July 16, we anticipate annual revenue in the $2.4 billion to $2.52 billion range with earnings per share of $3.20 to $3.35, which reflect our current outlook in China.

This guidance also reflects the stronger us dollar.

3% to 4% negative foreign currency impact for the year.

With that we will now open up the call for questions.

Ladies and gentlemen, if you have a question at this time.

Please press the Star and then the number one key on your Touchtone telephone.

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Your first question comes from the line of Flys Ali from Deutsche Bank. Your line is now open.

Thank you hi, So I guess I just wanted to go back to China, a little bit sort of where do things stand currently and you know what are you able to do meetings now and what are you embedding any or three Q and fiscal 19 guidance for.

For China.

Yeah. Thanks fight that we were able to get holding some limited meetings towards the end of the second quarter and then throughout July as I mentioned in my script about two thirds of areas, where our sales leaders live and work were able to actually began holding meetings.

Some of those meetings are restricted based on size or that is being approved at the meeting, but nevertheless, we're able to start holding those meetings and actually it's a little better than that here in August and hopefully we'll see that continue as we go forward. We are kicking off some initiatives beginning actually in August with some promotion initiatives and so forth with the sales force what we've embedded in the guidance is essentially a slightly lower Q3 versus Q2 in China, and then coming back a little bit in the Q4 timeframe as we start meetings.

We began to get get our promotions kick in and get our Salesforce back working.

Okay and can you share sort of what the sales trajectory was maybe June versus July and China.

Yeah, I mean generally we don't go month by month, but.

That would be all factored into the way, we guide and again I think we've tried to be careful in saying that we believe Q3, maybe a little lower in Q2, and then we anticipate Q4, a little bit stronger Q4 stronger than Q3 as normally a sequential trend that we see anyway.

We do anticipate our salesforce.

Going back to work in driving the activity.

Okay, and so and what's the timing of the new logos Onyx Spa and do you think that's going to be that's is that a global rollout and how you're going to be able to start selling the product in China.

You know by the end of their.

Yes, we absolutely will it kicks off in China actually with our team and we get a chance to get the new product this month.

And then there will be a qualified sales leader.

Purchased in September and then the full rollout in the fourth quarter. Most of the markets will have some sort of a preview in the month of September on limited limited basis with the full rollout happening in the fourth quarter and that's pretty much global in nature.

Okay. Okay, and then just like your guidance range for Fourq, you would be implied range seems pretty wide.

So are there could we talk a little bit about what some of the puts and takes are perhaps beyond China or is it primarily just factoring in some uncertainty in China.

Yeah, I mean, I think the biggest uncertainty is China for sure. The rest of the business really has performed essentially with where we anticipated when we gave our guidance at the beginning of this year most of our stronger product initiatives were back half loaded.

The galvanic Spa, our live event those things were all in the fourth fourth quarter generally or the second half.

So I mean, we have a 40 million dollar guidance range, which really reflects 20 million in Q3, and 20 million in Q4, which is our standard guidance that we've given so we really haven't built in.

Anything into the guidance out of our ordinary process.

Okay. Thank you you bet. Thank you.

Your next question comes from the line of Steph Wissink.

From Jefferies. Your line is now open.

Thank you good afternoon, everyone.

I'd like to focus on the customer growth its actually quite impressive even in the context of what's happening in China. If you could just go through some of the initiatives.

Or the Activations that youve put in place year to date and then what you expect on customer growth in terms of momentum in the back half that would be helpful.

Yes, Yes, let me speak a little bit to that yes, we are happy with.

With the direction of our customer growth as rich mentioned previously very intensive focus of the company.

Around customer acquisition and retention so velocity continues to drive a good amount of customer acquisition net customer growth as I mentioned briefly is happening through a series of initiatives, including.

Some repeat order campaigns, our China was has been very successful are effective in deploying these customer retention initiatives. During this this difficult period thats when well do that to their customer growth, but we're also engaging similar practices around the customer.

In other markets as well so so those are kind of the two key.

Reasons for growth in customers at this point.

Okay. So we can assume a continuation of customer growth into the back half and how should we think about the rebuild of the pipeline of leaders, particularly in China, but even generally across some of the Americas and other.

Asian region, Sarah Asian country.

Let me comment first and then Ryan can add some detail to that.

Our biennial event from every two years, we hold our live event and if you go back to 2017 that was really a catalyst for us being able to energize and sales force around the world both with the event, but primarily with our product rollout.

We anticipate the same happening this year, we've got strong product initiatives, our galvanic spa has been our top selling product for a number of years, but it hasn't actually been updated for about 10 years. So we look forward to the rollout of a new spot also has some additional products that come with it.

That we think will be well received.

These products have not been available in China, it's our nutrient hair products, although some of the other markets around the world have had the product, it's a new and improved formulation.

So we think those will be good for customer we continue to focus on social sharing opportunities because that's been a strong driver customer growth as well and then finally I would say our.

Focus around velocity to both drive sales leader productivity, but also sales leader growth is we like the direction there and we'll continue to focus on that in the back half the year.

Okay. That's great last one Mark for you is just on the manufacturing and I think I got the number up 39%.

In the quarter can you talk a little bit about how that vertical manufacturing and your comments on the cloud migration by the end of Q3, how that allows you to really drive an acceleration in your product development pipeline.

And then just remind us what the the overall financial impact is for 2019, if there's any change in your revised guidance.

For the impact or the benefit from the manufacturing Verticalization.

Great. Thank you great question.

We really are the manufacturing entities were a couple of reasons. The first one was again as you mentioned to speed up our path to developing new products both of these manufacturing efficiencies.

Or in close proximity to our global headquarters and enable our scientists here to go on site. These small batch testing et cetera.

But whats been really exciting about these manufacturing it is they've been able to tap into other fast growing verticals outside of our direct core Nu skin business that is really driven their growth all of their growth that is reported is sales our sales outside of sales to new skin those sales to new skin are eliminated where we see the benefit of sales to new skin is in our gross margin line and that's one of the things that benefited our gross margin in the quarter.

Okay. Thank you.

Your next question comes from the line of fully VR Tong from Bank of America. Your line is now open.

Hi, This is actually Jackie Roth on for Olivia Tong I wanted to first go back to China quickly two questions on the you mentioned some promotional strategies that you're implementing or in August . So just if you could give a bit more detail on those and then in terms of the timing you mentioned you're expecting.

A bit worse in China in Q3, and then some improvement in Q4 and is that just based on the meetings restrictions being lifted or are you also seeing some improvement in terms of the negative media sentiment. There. So that was something you'd also called out.

Yeah, I'll speak to the first one regarding the promotional strategies.

Okay. So so specifically in China as the as I previously previously mentioned, we have multiple customer acquisition and retention initiatives.

That are in place and that will continue to to drive in the quarter. We have the new product introductions that we mentioned before with galvanic Spa and and Ageloc Nutri, all which is a new category.

Entrant in interest in China in hair growth in hair hair care, something we don't do today.

In that market. So thats helpful. Additionally, on the sales leader side, we have several promotions or initiatives planned to support sales leader productivity growth from August .

Forward. So this is really geared at at supporting our sales leaders and our qualifying sales leaders in that market to grow their business and this is this is a series of linked incentives that that facilitate or enable the growth to happen through sales leaders in a eunice Kennedy effectively and effective manner. So those those are the promotional elements.

Yes, let me just comment on the sort of the forecast and what we see in China.

We do anticipate are built into our guidance a slight decline Q3 to Q2, so where do we get that and what's made us come up with that.

Forecasts essentially we are able to begin holding meetings right towards the end of Q2, and then a little bit more into Q3, which we see continuing to improve here as we get into August we think that will definitely help. We also see the the promotions can continuing to help however, we've been real cautious I mean, the fact that we were a long period of time without holding meeting.

Put put slows the business down, especially as it relates to being able to train and acquire new sales leaders. The sentiment generally I think overall has approved improved somewhat as it relates particularly to the nutrition industry and also to direct filling there been more positive media I would say in the last month or so and we feel like that will also help consumer sentiment. So yeah, we see all those things and try and monitor them as we forecast out what we think the business will do but overall, we are really optimistic about China. This is a great market and frankly, we've been through several of these ups and downs in our history and our management team is well versed in how to work with our sales leaders and get them back to work and put the right incentives in place to.

Get people committed and back working so that's what we built into our forecast.

Okay. Thank you that's helpful and then if I.

Just ask one more about.

In terms of the galvanic Spa Ageloc neutral.

Just sort of if you could give a sense of how these are different from how meaningful the difference I guess is from your original versions and then how you are thinking about.

Pricing is based on the initial versions because it seems like your strategy is skewing more towards.

More approachable price points for your products, how is that something that we might see with the relaunch.

Again X spine has a completely new user interface interface.

Which we think will be well received it has been our top selling product for about 10 years, and we really see it as.

Something that our customers and our sales leaders are very very familiar with the like that the nutritional product has been available in certain markets.

Those markets are getting a new improved formulation some of the markets China, specifically has never sold the galvanic or they get the new shale products. So that will be a brand new product and the pricing will be similar the new.

User interface on the galvanic will be similar to where the ultimate.

Okay. Thank you.

Your next question comes from the line of dog growing from leading research. Your line is now open.

Hi, Thanks, good afternoon everybody.

We talk a little bit more about the Grove Eve initiatives I know Ryan you touched on them or green shake and a face mask at the live event.

So it sounds like the green shake his nutrition oriented to face mask is beauty oriented so what's the branding going to be on these are they going to go in the pharma nexsan and Nu skin brands or will grow viiv have its own brand.

Yeah, It's a great question, Doug Thanks for that we're excited about our progress and we're finally to a point, where we're starting to release products that have been developed utilizing this technology around indoor growing so.

These will be our first Q1 in the nutrition one in the personal care there will be under a pharma next ending and Nu skin brand, but it'll have a grove, we inside sort of certifications, so giving credence to the fact that the ingredients for grown in a completely poor environment and these will be our first products. We look for many more as we go forward both products where we're.

Including ingredients that are CEA, our control environment agriculture.

Developed but also brand new products as well and those will be developed and announced as we get a little bit closer.

Now, we'll be speed premium price given the growing technology here.

Not necessarily we have a green shake already this will be an updated version of that but the pricing will be similar on that product.

This is a new face mask, but it will be priced competitively with other.

Face math that would that we sell.

Okay. Thanks, that's helpful and just last week.

In your in your model in China, Obviously, you rely on meetings and Thats, where youve been hamstrung. If you will with this 100 day review period and the fallout from it is there anything you can do in China to modify your model. So you are less reliant on these.

Permitted meetings.

Yeah, It's a great question and we've really focused a lot of energy and attention around the customer first and foremost around building a strong customer base promoting to the customer has been helpful. I think.

We still as we look around the industry, we actually feel like we fared fairly well and done quite well over the last two quarters. We look forward to now getting our sales leaders back going.

I would say about 80% ranking confirm of our transactions are actually done over we chat and.

Mobile device, so weve leverage that technology, and gotten better and better over the last few years and we'll continue to look at that as ways, where we can communicate and promote the business and.

Being able to carry on even when meetings are somewhat restrictive.

Okay. Thank you.

Thank you.

Ladies and gentlemen, if you have questions at this time.

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Your next question comes from the line of Beth Kite from Citi. Your line is now open.

Wonderful day, everyone.

[laughter] perspective, some of the conversation so far around China.

Well. Thanks, I think was the strength in the first quarter, even through the investigation with the concept of pivoting to skin care, and maybe sort of less face to face interaction and some more ecommerce like buying if you will.

You know what it did was it the situation that you just kind of got it's a little bit of a snowball effect by the second quarter than with the meetings kind of catching up to you was there still some of the offset of of skin care being stronger in the second quarter, and I guess big picture and it's a little bit of what we were talking about earlier with respect to is the nutrition category is the negative press, maybe lifting might you see that category being a little stronger for you maybe in a 12 month horizon and then related to that Trninety had been so strong I believe in China last year is that a storyline that maybe well repeat here in 19, but maybe might come back into 2020, and all of that again its respective to China.

Yes, I think theres a lot of questions there that Ryan I can both tag team on that first and foremost in China. The biggest impact really was the fact that our sales leader number came down.

Well, we were able to continue to promote the customers and keep our customer number fairly fairly strong.

The sales leader neat number coming down really impacted overall sales and that was primarily impacted by the lack of not being able to hold meeting not being able to drive that number up. So I think it will definitely be helped as we start holding meetings and so forth. We stayed focused on our beauty device platform, there, which we think is really strong and it continues to do quite well trninety as well we've held off on promoting nutrition during that period of time as we felt like that was prudent but how will you know promote naturally have some nutrition supplements that we'll be looking at in the back half of the year in China as well. So yes. Overall you know we'll promote by both sides of the business. The business is getting back to a more normal pace, but we have to reenergize. The sales force and get them growing again, that's got to be the key area of focus both with promotions and our product launches.

Great. Okay, and then so I didn't know.

Right and had anything to say.

See you.

Now there are two more just quickly on product for the galvanic Spa do you envision because to the extent of the changes that current owners. If you will have a galvanic spa will.

Sort of the upside if you will to the newer version do you think the newer version will be appealing to both current customers into a whole new slate of customers and if so why.

Yes, Beth and by the way didn't mean to be too silent rich, which is very good [laughter].

Yeah.

On the on the on the Galvanic Spa. So we've we've upgraded the spa once before with with our Ageloc technology in the gels and we did see a an accelerated repurchase rate of the device, which is which is fantastic. So yes, we do expect.

Our existing galvanic user base to expand through repurchase.

I think the as rich mentioned the enhanced user interface is much more user friendly intuitive.

And the way it's bill. So we're excited I think it will appeal to an even broader segment of our customer base getting to the millennial engines Z, which we're excited about as well.

The other thing we really like about it is that it really is designed in a manner that is consistent with the loomis spot franchise in it and so it really just strengthens that beauty device systems platform that rich is describing.

So we think that there will be greater correlation of purchasing across loomis spot and galvanic spa users as a result of that as well.

Excellent you actually let me into my final question, which was on Lumispa and Acs and in particular.

I understand in the second quarter had its challenges in many markets, especially China, but.

How did accept perform in the full quarter or were you pleased with it.

Do you need to.

Re re tweet or tweak any of the sale strategies around that or how are you feeling about it and I guess, the let me spot franchise until at all.

Well, yes, that's where I would start bath that we really are pleased with the alumina spa franchise. There's so much more we can continue to do.

With that that franchise. It continues to be a major seller accent is really an extension of that.

And that was the role that it played its very specific as you know a very specific treatment around the area and so that does tend to be a more narrow segment, that's worried or around crows lines and those sorts of things around the eyes, but but as far as building on the franchise of Loomis spot. It fulfilled that role and will continue to build upon it because we see it as being a key pillar of that beauty device system platform as we go.

Excellent all right that's it for me thanks, so much.

Okay.

Your next question comes from the line of Mark asked for Sean from Stifel. Your line is now open.

Thanks and afternoon everybody.

I wanted to ask about your expectations for Threeq, you again, what's embedded in guidance, if China is going to be.

Marginally worse sequentially for the rest of the World is there are there any key regions there that had maybe more.

Impacted it sounds like there might be a little bit weaker sequentially in any particular reason for that.

I think generally Q2 is a stronger quarter normally than Q3 from just from us.

In our kind of the way the year plays out each year.

Overall, we you'll notice that our guidance is slightly below where Q3 as the primary factor there is.

China. So the rest of the world would anticipate the and mostly even from Q2 to Q3 and.

I feel like the business in most of the other regions is doing well sequentially. It trended pretty well from Q1 to Q2, both in terms of customers and and sales leaders as well as revenue and.

So theres nothing planned that would.

Causes to really change our guidance or look at things too differently.

We do begin the galvanic spa there'll be some markets that will start to sell that on a limited basis in the third quarter that should help a little bit more in September .

And then we have.

Obviously, our live event.

Lot of product activity in the fourth quarter.

Got it Okay and then.

Lastly, on the productivity to sales leader productivity anything in particular, there that drove a bit of weakness beyond the trends in China like.

It seems like it was little bit worse across some other regions as well so maybe.

Any sort of detail there if you have it please.

I would just comment that as we've rolled out velocity one of the focuses on the velocity compensation structure is to increase the productivity of sales leaders.

And the requirement for them to build why that is not as.

In depth as it was previously so for example in Europe , where we rolled out velocity in kind of the end of the first quarter. We saw a decline in the sales force and yet strengthening in the customer base. So we've seen that happen in a few markets as we've changed the compensation structure, but generally outside of that not a lot of change we do see I think what we anticipate is with the stronger customer base per sales leader, we would anticipate the retention of sales leaders to continue to improve and that was really the one of the focuses around the velocity changes that we made.

Okay. Thank you.

You bet. Thank you.

I think that is the last question, we really appreciate everybody joining us we look forward to a good back half of the year.

I was disappointed certainly with the results that we presented here in the second quarter, but as I look overall the business I'm encouraged that our profitability I'm excited about the live event and the product ammunition, we have in the back half of the year. We've really made some good progress on technology, which is going to start to play a key role as we go forward and speeding up and helping our sales leaders be more effective so generally what we're anticipating.

Continued opportunity this to prove ourselves going forward.

Would invite any of you who would be interested to come to life and certainly reach out to Scott Pond. If you have interest and then we can look at getting you hear them, but we do anticipate a really good back half of the year and thank you for your time and attention today.

This concludes today's conference call. Thank you and have a great day.

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